The Strategic Petroleum Reserve (SPR)
is an emergency supply of crude oil designed to be the nation's first line
of defense in the case that petroleum supplies are interrupted. With
the capacity to hold 700 million barrels (bbl), the SPR is the largest
emergency oil stockpile in the world. The oil is stored in huge underground
salt caverns along the coastline of the Gulf of Mexico, in Texas and Louisiana.
The SPR represents more than a $20 billion national investment, including
oil and storage facilities. The Energy Policy and Conservation Act
authorizes the President to withdraw crude oil from the SPR during an energy
emergency. In the case of such an event, SPR oil would be distributed
by competitive sale. Oil was withdrawn for the first and only time
to date during Operation Desert Storm in 1991. The SPR functions
as a significant deterrent to oil import cutoffs and a key foreign policy
tool.

Most Recent ActionPresident Clinton signed H.R.
2884, the Energy Policy and Conservation Act reauthorization bill,
into law on November 9, 2000. Congress passed the bill in late October.
After the House passed the bill in April 2000, the Senate sat on the bill
for some time before the Senate Energy and Natural Resource Committee began
consideration. Senator Frank Murkowski (R-AK), Chair of the Senate
committee, introduced an amendment in the form of a substation on the Senate
floor. The revised bill maintains the original purpose of the bill
-- to reauthorize the president's authority to draw from the Strategic
Petroleum Reserve and American membership in the International Energy
Agency -- as well as establishes a permanent home-heating oil reserve in
the Northeast. The revised version clarifies language as to when
the president can draw from these reserves, expands the Department of Energy
weatherization assistance program, provision that requires the secretaries
of the Interior and Energy to undertake a national inventory of onshore
oil and natural gas reserves, and several other programs. For independent
drillers and marginal wells (those that produce under 15 barrels a day),
the new law authorizes the Secretary of Energy to purchase oil from these
sources at $15 per barrel if the annual domestic average is below this
level. Oil purchased through this program would go into the Strategic
Petroleum Reserve All these activities are authorized through 2003
under this act.

Current CongressIn September 1999, the House Commerce Committee began work on legislation
related to the Energy Policy and Conservation Act (EPCA) that would specifically
reauthorize the Strategic Petroleum Reserve and American membership in
the International Energy Agency until 2003. The Subcommittee on Energy
and Power, chaired by Joe Barton (R-TX), held a hearing on the reauthorization
bill (H.R.
2884) on September 23, 1999. The Honorable Robert Gee, Assistant
Secretary for Fossil Energy at the Department of Energy, gave testimony
on the importance of expeditiously passing the reauthorization to allow
the US to participate in a simulation "on the potential impact on world
oil supply of Y2K-related computer problems." Lee
Fuller and Michael
Canes, both representing the private petroleum industry, echoed Assistant
Secretary Gee's sentiments on the need for reauthorization and continued
filling of the SPR in their testimony.

At the hearing, an amendment in the form of a substitute was offered
that not only extended EPCA, but also included language regarding purchasing
oil from domestic marginal wells. As defined for this legislation,
marginal wells have an average daily production of 15 barrels or less.
The bill would authorize the Secretary of Energy to purchase oil from marginal
wells at $15 per barrel to fill the Strategic Petroleum Reserve (SPR)
when the market price for oil is lower than $15 per barrel. According
to the Committee Report (H.
Rept. 106-359), the purpose of this new language is "to assure that
marginal wells, an important and significant source of oil, are not shut-down
during periods of extraordinarily low oil prices."

Directly after the hearing, the subcommittee marked-up the bill and
favorably passed it to the full Commerce Committee for consideration.
The following week, the full committee marked-up H.R. 2884, and after partisan
discussion on the marginal-well amendment, reported favorably on the bill
that now awaits floor debate and Senate approval.

In addition to H.R. 2884, two bills were introduced the previous February
regarding SPR. Rep. Lamar Smith (R-TX) introduced
H.R.
490, a bill that requires the Secretary of Energy to purchase additional
petroleum products for the SPR, that was subsequently referred to the House
Commerce Subcommittee on Energy and Power, where the bill was the subject
of one hearing. On the same day, Rep. Mac Thornberry (R-TX) introduced
H.R.
498, a bill to direct the Minerals Management Service to accept royalty-in-kind
oil from the Gulf of Mexico to fill the SPR, that was also referred to
the House Commerce Subcommittee on Energy and Power and the Resource Subcommittee
on Energy and Mineral Resources. Neither of these bills have seen
action since their introduction and are not expected to move forward.

H.R.
2884, which reauthorizes the Energy Policy and Conservation Act (EPCA),
was passed by the House on Wednesday, April 12, 2000. H.R. 2884 authorizes
appropriations through FY 2003 for the management and operation of the
Strategic Petroleum Reserve (SPR), and reauthorizes the President to draw
from the SPR when necessary. It also provides funding, on the same
time frame, for U.S. participation in the International Energy Agreement.
However, it was unclear when the Senate would begin action on the bill
because Senate-Democrats had put a hold on the bill. According to Environment
and Energy Daily, the main problem that the Senators have with the bill
are small attachments that were made by Rep. Joe Barton (R-TX) and Rep.
Ed Markey (R-MS). Barton's language mandates the purchase of SPR
oil from stripper wells -- something that many Senators feel
poses logistical problems. Markey's amendment, along with several
others, is in line with a number of new bills
that were recently introduced in response to the high
oil prices earlier this year. Markey's amendment creates a home-heating
oil reserve in the Northeast (Environment and Energy Daily, 4/12).
Another amendment to the bill extends the authority of the President to
draw from the SPR in regional emergencies instead of solely national emergencies.
With accusations that the Organization of Petroleum Exporting Countries
(OPEC) is engaged in price fixing, several Members of Congress have called
on the President to take advantage of this country's petroleum reserves
until the oil market stabilizes.

Related bills that were recently introduced:H.R.
3644, a bill that would authorize the president to draw from the SPR
during times of regional or state emergency (rather than a national emergency),
was discussed during a House Judiciary Committee hearing on March 29th.
Rep. Robert Weygand (D-RI), who introduced H.R. 3644, is the not the only
Member of Congress to see the SPR as a tool to curb rising oil prices.
H.R.
3533 and H.R.
3543 , introduced by Rep. Gary Ackerman (D-NY) and Rep. John Larson
(D-CT), respectively, would both give the Secretary of Energy the authority
to draw from the SPR when oil and gas prices in the United States rise
sharply because of anticompetitive activity. The hope is that the
profits produced from the sale of SPR oil would be used to help lower the
cost of heating oil. The bills would also require the President,
through the Secretary of Energy, to consult with Congress regarding the
sale of oil from the Strategic Petroleum Reserve. S.
1951, introduced in the Senate by Sen. Charles Schumer (D-NY), has
similar intentions.

BackgroundDifferent sections of the federal government recognized the need for
a federal petroleum reserve starting as early as the 1940s but, despite
the general call for a reserve, Congress did not authorize one until 1975,
when the Energy Policy and Conversation Act (EPCA) was signed into law
(Public
Law 94-163) after the Arab oil embargoes. EPCA authorized three
primary programs: the United States involvement in the International Energy
Agency (IEA), the Strategic
Petroleum Reserve (SPR), and efforts to "reduce vulnerability through several
energy efficiency and renewable energy and conservation programs."
The Department of Energy's efficiency and conservation programs were reauthorized
in the last Congress through the year 2002 (Public
Law 105-388). Currently, the SPR and IEA programs are in
need of reauthorization. Several members of Congress and the petroleum
sector see a pressing need for reauthorization with the potential threat
of a Y2K energy supply problem.

The Committee on the National Institute for the Environment has published
a Congressional Research Service summary
on the strategic petroleum reserve that gives background and current activity
on the reauthorization events.

International Energy Agency

The International Energy Agency was established in 1974 as an autonomous
agency within the Organization for Economic
Cooperation and Development (OECD), an international organization of
29 countries whose goal is domestic and international economic growth.
IEA's charter is the Agreement on an International Energy Program. The
goals of IEA include:

Cooperation between the member countries to increase energy security through
conservation, development of alternative energy sources, and energy research
and development.

Development of an information system on the international oil market as
well as consultation with oil companies.

Co-operation with oil producing and other oil consuming countries with
a view to developing a stable international energy trade as well as rational
management and use of world energy resources in the interest of all countries.

A plan to prepare participating countries against the risk of a major disruption
of oil supplies and to share available oil in the event of an emergency.

Each member of the IEA is committed to maintaining a reserve that is equivalent
to 90 days of net oil imports. Originally, the policy of IEA was to act
as an emergency system based on allocation of available supplies among
the oil importing countries. Currently, the U.S. maintains that the best
response to rising prices associated with an emergency is to allow markets
to balance supply and demand by injecting additional supply into the market
"in a timely manner." Withdrawing oil from SPR early in a potential supply
emergency can act as a deterrent to oil import embargoes and by doing this
collectively, the mitigation impacts are greater than if each country acts
alone.

Strategic Petroleum Reserve

The United States' SPR is made up of five oil storage sites located
in underground salt domes along the Gulf of Mexico. This area was chosen
for storage because there are 500 plus salt domes along the coast and many
U.S. refineries are located there as well as numerous distribution points
for tankers, barges and pipelines. Major sites in the SPR storage
network:

Byran Mound: Located near Freeport, Texas. The largest of the storage sites
with a capacity of 226 million barrels. The top of the dome is 1200 feet
below ground level and the bottom reaches to a depth of 50,000 feet.

Big Hill: Located near Winnie, Texas, the newest facility has a capacity
of 160 million barrels.

West Hackberry: Located southwest of Lake Charles, Louisiana with a capacity
of 219 million barrels.

Bayou Choctaw: Located southwest of Baton Rouge, Louisiana with a capacity
of 72 million barrels.

Weeks Island: Located in Iberia Parish, Louisiana, southwest of New Orleans
with a capacity of 72 million barrels.

The Weeks Island site developed a naturally occurring geologic fissure
or fracture and will be decommissioned by the end of 1999. To help cover
costs of relocating the oil from the Weeks Island site to the Big Hill
and Bayou Choctaw sites the Senate Energy Committee authorized the sale
of up to 32 million barrels of oil in January 1996. In March of 1996,
DOE sold off only 5.2 million barrels of oil to finance this transfer.

The current supply in the SPR equals approximately
60 days of net imports, nearly 563 million barrels of oil. The remainder
of the required 90 days of imports needed to meet the IEA obligation are
from private inventories. Continued stockpiling was suspended in FY1995
so that the SPR budget could be used for the establishment of the Life
Extension Program which refurbishes SPR equipment and extends the life
of the storage facilities. The program goal is to maintain the reliability
and availability of SPR and extend the life of the reserve through 2025.
This program is to be completed by September 2000.

EPCA authorized a reserve of up to one billion barrels. At its peak
in 1994, SPR held 592 million barrels. Decisions to withdraw oil from SPR
are made by the President and if an emergency occurs, the SPR petroleum
is distributed by competitive sale. SPR has only been used in one emergency
to date, during Operation Desert Storm in 1991. Originally, 33.75 million
barrels were slated for sale but this was later reduced to 17.3 million
barrels when prices began to stabilize. There have been two non-emergency
sales of SPR oil. In FY1996 $227 million worth of oil was sold and in FY1997
$220 million was sold. The revenue from these sales was used for deficit
reduction.

Sources: The Committee for the National Institute of the Environment
website, Environment and Energy Weekly, CRS Report, OECD website, hearing
testimony, House Commerce Committee website, Independent Petroleum Association
of America NewsFax, and the Library of Congress website.